Small firms scratch at AT&T's door / Upstart cable operators take on the mega-provider, but with limited success

Todd Wallack, Chronicle Staff Writer

Published
4:00 am PST, Saturday, February 9, 2002

Caroline Baldassarre checks out her newley installed digital cable from Alameda Power and Telecom. BY MIKE KEPKA/THE CHRONICLE

Caroline Baldassarre checks out her newley installed digital cable from Alameda Power and Telecom. BY MIKE KEPKA/THE CHRONICLE

Photo: MIKE KEPKA

Photo: MIKE KEPKA

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Caroline Baldassarre checks out her newley installed digital cable from Alameda Power and Telecom. BY MIKE KEPKA/THE CHRONICLE

Caroline Baldassarre checks out her newley installed digital cable from Alameda Power and Telecom. BY MIKE KEPKA/THE CHRONICLE

Photo: MIKE KEPKA

Small firms scratch at AT&T's door / Upstart cable operators take on the mega-provider, but with limited success

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Mike Deliman has long been frustrated with his city's cable television monopoly.

"I had (it) years ago and was so disappointed with the quality and service, I dumped it and did without," said Deliman, an Alameda software engineer.

Like most Bay Area residents, Alamedans have traditionally had only one choice for cable TV: TCI, which was bought by AT&T Broadband three years ago. AT&T, the region's dominant cable company, has locked up cable franchise agreements with cities covering 90 percent of the area's population.

But last summer, a new competitor entered the market: the city of Alameda itself. Alameda Power & Telecom, which snaked fiber-optic wires across the island in 1996 to help deliver electricity, recently started offering cable TV service as well to generate extra revenue. This month, it plans to start offering high-speed Internet service, competing with AT&T's cable modem business.

Deliman immediately signed up. "I like the idea of community-owned utilities," Deliman said. Plus, the service was cheaper than AT&T's.

Alameda isn't unique. A growing number of Bay Area towns are getting a second cable system. New Jersey's RCN has rolled out service in parts of San Mateo County and San Francisco. Seren Innovations, a unit of Xcel Energy in Minneapolis, has launched service in Concord. Both companies are also offering telephone and cable modem service.

SMALL FIRMS NOT BIG PLAYERS

But despite Deliman's enthusiasm, alternative cable firms play only a minor role.

While AT&T says it has 2.1 million subscribers in the region, Seren has just 9,000 subscribers and Alameda's utility has 2,100.

"In the grand scheme of things, they are not very significant," said Yankee Group analyst Michael Goodman.

RCN wouldn't disclose local subscriber totals, but it lags far behind AT&T in communities where it offers service. In Redwood City, for instance, AT&T collected 12 times as much revenue from cable, telephone and Internet customers as RCN did in the second half of 2001, according to Redwood City tax collection data. Since RCN first launched in Redwood City last March, it has signed up roughly 4,000 subscribers.

AT&T spokesman Andrew Johnson said the company sees much more competition from satellite dish companies, which have been aggressively marketing television packages, and DSL companies, offering high-speed access. Pacific Bell, for instance, boasts that it has signed up more local Internet customers than AT&T. And nationwide, satellite dish providers have signed up close to 1 in 5 households.

By comparison, rival cable providers -- also known as "overbuilders" -- have only signed up 1 or 2 percent of households at most, Goodman said.

For one, alternative cable operators have only managed to wire a limited number of neighborhoods because of the enormous cost involved in laying coaxial cable to every home. "It is a very expensive proposition," Goodman said.

BIG PLANS TAKE A HIT

Indeed, Digital Access Inc. of Pennsylvania, which planned to build cable TV systems in four major cities, burned through $450 million in venture capital before shutting down last March.

And survivors, like RCN and Seren, have had to slow down their rollouts since the Nasdaq crashed and investors became more stingy.

RCN, for instance, scrapped plans to enter several new markets around the country, including Houston and Miami, and fired hundreds of workers. RCN recently said it has also decided to delay or curtail expansion efforts in existing markets, like the Bay Area.

"By remaining within our current footprint for now, we can best focus our efforts on generating increased revenues," said spokeswoman Pam Faatz. In addition to Redwood City, RCN offers service in portions of Daly City, San Francisco, San Mateo and South San Francisco.

Seren, which offers service under the Astound brand name, has also decided to slow down its expansion. "It is important that we not overcommit," said spokeswoman Patty Friesen. "There has been a change due to the economy."

The company offers service in 92 percent of Concord and plans to reach the rest by June. Seren hopes to sign up its first customer in neighboring Walnut Creek next month.

Eventually, Seren plans to expand into one or two other nearby communities, Friesen said, including either Martinez, Pleasant Hill or Pittsburg.

TOO MUCH HASSLE FOR MANY

Upstart cable companies also face a disadvantage because many customers are content to stick with their current cable provider, rather than go through the hassle of installing an alternative, experts said. Johnson said rivals are primarily signing up first-time customers or people AT&T disconnected for nonpayment.

"We haven't seen any large market loss," Johnson said.

Johnson also pointed out that the company can offer special promotions in selected towns to head off added competition. Like many major companies, AT&T also has set up a special customer service desk to dissuade customers who call to cancel.

Some evidence suggests that customers benefit from the competition, however.

Though the service is now available to less than one-third of the city, McCabe said the utility hopes to wire the rest of the city by year-end. He said the total cost of the project will be $16 million and that the utility hopes to break even starting in late 2004.

AT&T, which is seeking approval to merge its cable operations with Comcast later this year, unsuccessfully tried to halt the effort. "We believe it is a business best left to the private sector," Johnson said. Regardless, in most communities in the Bay Area, AT&T remains the only cable television company in town.

AT&T is the dominant cable provider in the Bay Area, but several rivals offer service in selected towns. - AT&T Broadband

2.1 million local subscribers Most area towns'

monthly price for TV and Internet (x) $36(y)/$46 - Seren/Astound

9,000 local subscribers Concord monthly price

for TV and Internet $27/$40 - Alameda Power

2,100 local subscribers Alameda monthly price for

TV and Internet $32/$40 - RCN

Local subscribers n/a San Francisco, San Mateo

counties monthly price for TV and Internet $34/$50 . (x) Stand-alone prices for the most popular cable TV package and high-speed Internet service. Discounts are frequently offered for multiple services. . (y) Bay Area average